Allegations Against Multiple Attorneys Deemed Related Acts or Omissions Constituting a Single Claim Subject to a Misappropriation of Client Funds Exclusion
The United States District Court for the Eastern District of Pennsylvania, applying Pennsylvania law, has held that the allegations against two attorneys named in a malpractice lawsuit constituted a single “claim” under a lawyers professional liability policy. D’Angelo & Eurell v. Allied World Specialty Ins. Co., 2025 WL 2433036 (E.D. Pa. Aug. 21, 2025). The court also held that the insurer had no duty to defend or indemnify either attorney pursuant to the policy’s misappropriation of client funds exclusion.
A former client of one of the insured attorneys asserted that the attorney had mishandled the client’s funds and accounts. The law firm’s other attorney represented the first attorney in pre-suit communications regarding the former client’s claim. The former client subsequently filed suit against both attorneys. The insurer denied coverage for both attorneys based on the policy’s misappropriation of client funds exclusion, which barred coverage for any claim “based on, arising out of, directly or indirectly resulting from, in consequence of, or in any way involving, in whole or in part . . . misappropriation, conversion, embezzlement, failure to give an accounting, or comingling of client funds.”
In the ensuing coverage litigation, the attorneys argued that the allegations asserted against each of them in the underlying suit should be viewed as separate claims because the allegations against the first attorney, who had represented the former client, differed from the allegations against the second attorney, who had represented the first attorney in his dispute with the former client. The attorneys further argued that, even if the policy’s misappropriation of funds exclusion barred coverage for the attorney who had represented the former client, the exclusion did not apply to the allegations against the second attorney.
The court rejected the attorneys’ argument, holding that the allegations against both attorneys qualified as related acts or omissions, which the policy defined as “[a]ll acts or omissions based on, arising out of, directly or indirectly resulting from, or in any way involving the same or related facts, circumstances, situations, transactions or events or the same related series of facts, circumstances, situations, transactions or events.” The court reasoned that the claims against both attorneys shared a common nucleus of factual allegations, including that the second attorney had assisted the first attorney in perpetrating and attempting to conceal the fraud on the former client. Thus, the court held that the allegations against both attorneys must be viewed as the same claim because they arose out of the same or related facts and circumstances.
The court also held that the policy’s misappropriation of client funds exclusion barred coverage for the former client’s malpractice claim against the first attorney because the exclusion language was facially broad and the attorneys could not demonstrate that the claim did not in any way involve conversion of the former client’s funds. The court further held that, because the former client’s claim against the second attorney was one and the same with her claim against the first attorney, the misappropriation of client funds exclusion applied to the claims against both attorneys.
